Since the beginning of this year, rumors have been heating up that Apple will release not one, but two iPhone models this year. One of these devices would be the next flagship iPhone 5 based on the the current pricing structure, while the second device would be a cheaper (possibly pre-paid) "Nano" handset.
Apple's COO and CFO have chimed in on what it would take for the company to release a cheaper iPhone. They describe that the product would need to be an, "innovative, category-killer experience."